In the realm of electric vehicles and energy storage, China’s ambitions are scaling new heights, fueled by substantial state subsidies and a deluge of unchecked bank lending. The colossal battery manufacturing infrastructure under construction in China far surpasses domestic demand, hinting at an international expansion drive by Chinese manufacturers. This echoes a familiar narrative in sectors like steel, aluminum, and solar panels, where Chinese companies, buoyed by subsidies, secure a substantial share of the global market and pose a formidable challenge to international competitors.
The figures paint a striking picture. Production capacity at China’s battery factories is projected to surge to a staggering 1,500 gigawatt-hours this year, equivalent to powering 22 million electric vehicles—more than double the expected demand of 636GWh, as reported by CRU Group, a renowned research firm. This overcapacity phenomenon is raising alarm bells in the industry, drawing parallels with past experiences, particularly in aluminum, where an overabundance of production adversely affected global markets.
“We are worried,” admits Olivier Dufour, co-founder of Verkor, a French battery start-up backed by Renault, who draws comparisons between the current battery manufacturing surge and the aluminum industry’s past struggles. Dufour, a former executive at mining giant Rio Tinto, finds the situation “preoccupying.”
China’s regions are engaging in fierce competition to capitalize on government subsidies, aiming to become battery production hubs poised for the anticipated surge in demand. However, this fervent rush has the potential to create a surplus of production, a scenario that has raised concerns even within China’s leadership.
Chinese President Xi Jinping, in a notable address in March, expressed apprehension regarding the battery industry’s over-expansion, cautioning against a potential boom-and-bust cycle. Similar cycles have afflicted rapidly growing Chinese industries, including real estate and solar.
Sam Adham, head of battery materials at CRU Group, reveals that Chinese battery production reached approximately 550GWh in the previous year, surpassing the 450GWh incorporated into end products and exported. Adham notes that many manufacturers are accumulating excessive stockpiles due to overproduction.
According to CRU Group’s data, based on announcements of impending battery plant construction, the overcapacity problem could quadruple by 2027, far surpassing China’s requirements. This surplus production would be twice the volume needed to transition China’s entire automobile fleet to electric vehicles by 2030.
Western motor industry executives in China have raised concerns over the “totally unrealistic” expansion plans of manufacturers, which have materialized despite hopes of industry consolidation. As overcapacity concerns intensify, there is a distinct risk that more companies may resort to exporting their surplus, a trend reminiscent of the solar industry’s trajectory. Such a scenario could further escalate geopolitical tensions between China and Western nations.
The possibility of Chinese battery manufacturers flooding international markets with excess supply raises critical questions about the consequences of global competition and the delicate balance of trade relationships. As China’s battery boom continues, the world watches with a mix of fascination and apprehension, cognizant of the potential ramifications of this oversupply conundrum.